“Sell in May and go away” is a well-known saying in relation to share markets.  Does it have any validity?  Well, the first question that needs to be answered is “go away for how long?”  The phrase is likely a take on an old English saying “sell in May and go away, come back on St Leger’s Day”.

Horse racing buffs may know that the St Leger Stakes is run in September each year.  So, the rationale would be to sell shares in May and buy them back in September expecting the (buy) price in September to be less than the (sell) price in May.  Easy enough.  Let’s see how successful this would have been.  We’ll keep it simple and not include buying and selling costs or tax implications.
We’ll use the ASX top 200 index (the XJO) to back test the strategy.  We’ll compare the value of the XJO at the beginning of May to the value at the end of August for the last 20 years.  Here’s the table of results:

Year May August Change Percentage Successful?
1997 2421 2526 +105 +4.3% No
1998 2745 2430 -315 -11.5% YES
1999 3001 2875 -126 -4.2% YES
2000 3115 3297 +182 +5.8% No
2001 3329 3275 -54 -1.6% YES
2002 3348 3120 -228 -6.8% YES
2003 3008 3200 +192 +6.4% No
2004 3400 3552 +152 +4.5% No
2005 3991 4446 +455 +11.4% No
2006 5273 5115 -158 -3.0% YES
2007 6166 6247 +81 +1.3% No
208 5654 5135 -519 -9.2% YES
2009 3780 4479 +699 +18.5% No
2010 4807 4404 -403 -8.4% YES
2011 4823 4296 -527 -10.9% YES
2012 4396 4316 -80 -1.8% YES
2013 5191 5135 -56 -1.1% YES
2014 5489 5625 +136 +2.5% No
2015 5790 5207 -583 -10.1% YES
2016 5252 5433 +181 +3.4% No

 

Summarising these back tested results for 1997 to 2016:

  • The “sell in May and go away” strategy would have produced a beneficial outcome in 11 out of 20 years. The average beneficial percentage is 6.2%.
  • The “sell in May and go away” strategy would have produced a detrimental outcome in 9 out of 20 years. The average detrimental percentage is 6.5%.

“Sell in May and go away” would have produced only a marginal benefit if applied as noted here over the last 20 years.  An interesting saying, but not a viable strategy.

Please note, this article is for general advice purposes only. It is not taking into account your particular circumstances or your personal finances. As mentioned above, this is a simplified analysis, and does not take into account certain financial implications (such as buying and selling costs and tax implications). If you wish to discuss the matter in further detail or wish to book an appointment to discuss your personal financial situation and future financial goals, please book an appointment with one of our approachable advisers.

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